JD Group exposure ‘difficult to gauge’

Companies / 21 February 2014, 08:00am

Ann Crotty

Without details about the level of arrears exceeding five months it was impossible to know if JD Group’s substantial increase in provisions was adequate to address the deterioration in trading conditions, shareholder activist Theo Botha said yesterday.

The company’s share price rose 1.4 percent to close at R25.40 as investors contemplated the impact on yesterday’s interim results of the dramatic increase in provisions announced last week. The group posted a headline loss a share of 59.1c for the six months to December last year compared with headline earnings a share of R2.344 a year earlier.

The group reported yesterday that chief executive David Sussman, who founded the company in the 1980s, was on compassionate leave “for an indefinite period”.

Acting chief executive Peter Griffiths said the board was in discussion with institutional shareholders about the proposed rights issue, the pricing of which would take a “couple of weeks” to finalise. He also said that management would not reveal details of the provisions at the interim stage.

Last week’s trading update saw the share price drop to a 12-month low of R24.61. A year earlier the share had traded at a high of R41.50. But yesterday Botha, who urged the board to take more conservative provisions at the annual general meeting in November last year, said that without a detailed breakdown of the additional provisions it was impossible to know if they were sufficient to address the deterioration in trading conditions.

“We need to see what the exposure is to non-payment of over five instalments and to the level of non-payment of personal loans, before we can make a judgement on how adequate the new provisions are.”

Management told analysts at the interim results presentation yesterday that personal loans, which were introduced by JD Group in 2012, would be discontinued.

Botha said the R602 million increase in provisions to R1.6 billion was appropriate for the level of arrears as at June last year but it was evident from last week’s announcement and yesterday’s results that conditions had deteriorated significantly since then.

“Without seeing the details it seems likely that management will have to announce additional provisions in the not-too-distant future,” Botha said.

Alec Abraham of Afrifocus said things “are looking very, very bleak for consumers”. He said household debt to disposable income was at about 78 percent, close to its all-time high of 81 percent. He said some economists were expecting two further hikes in interest rates by mid-year.

“Consumers have been taking considerable strain for several months, well before any interest rate increases. Costs are continuing to rise and there’s not much reason for optimism with regard to economic growth, so things are likely to get worse.”

JD Group agreed that the consumer landscape was not expected to improve.

At the end of December, the impairment provision of R1.6bn represented 15.2 percent of the loan book.

In a presentation, Griffiths referred to internal factors that had a negative impact on the results. These included the fact that in the furniture retail division, where sales of merchandise were down 14.7 percent, “operational structure was not aligned to accountability” and a new IT system was introduced. He referred to a “sub-optimal supply chain services model”.

Looking ahead, management said it would focus on appropriate credit products aligned to the group’s core business and the new col- lection strategy would be monitored closely.